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47% of Americans say achieving retirement security will take a miracle. Why inflation is to blame

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Almost half of Americans — 47% — say achieving retirement security will take a miracle, according to a new survey from Natixis Investment Managers.

That is up “quite a bit” from about 40% of respondents who said the same two years ago, according to Dave Goodsell, executive director of the Natixis Center for Investor Insight.

The results come as research from the firm shows the U.S. has improved its overall score for retirement security compared to last year — with 71% versus 69% in 2022.

Most of the 44 countries included in the firm’s ranking also received higher overall scores compared to last year.

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Yet the U.S. fell two places to No. 20 in the ranking of developed countries.

The five top countries for retirement security include Norway at No.1, followed by Switzerland, Iceland, Ireland and Luxembourg.

The overall U.S. retirement score improved due to multiple factors, according to Goodsell: a 50-year low in unemployment; interest rates that may provide better income for retirees; reduced tax pressures; and post-pandemic wage growth, particularly for those with low incomes.

At the same time, the country also fell in the ranking compared to other countries due to high inflation, government debt and a lower life expectancy following the Covid-19 pandemic.

Natixis’ survey found one factor — inflation — has contributed the most to Americans’ pessimistic outlook for retirement.

“Inflation is definitely sitting on people’s minds in a way it hasn’t in a long time,” Goodsell said. “It’s their top investment concern, and it’s also their top financial fear, this idea of increasing everyday prices.”

Most survey respondents — 84% — say recent economic activity shows inflation is a big threat to their retirement security. That includes 87% of retirees.

48% expect tough choices in retirement

There is some optimism, with 52% of working Americans expecting to have the financial freedom to do what they want in retirement.

Yet at the same time, 48% said they expect to face tough trade-offs in retirement.

The most common sacrifice cited, with 42%, was living frugally. Other trade-offs people said they expect to make is working in retirement or moving somewhere less expensive, each with 31%; relying on family or friends to make ends meet, 28%; or having to sell their home, 26%.

The survey results come as the consumer price index posted its biggest monthly gain in 2023 so far, while posting a 3.7% increase in August from a year ago.

Other recent surveys have shown inflation has shaken Americans’ retirement confidence.

Americans now believe they will need $1.27 million to retire, a target that has increased with inflation, according to Northwestern Mutual.

Moreover, 58% of retirement savers and retirees say their biggest worry is outliving their money, Cerulli Associates recently found.

High inflation has posed challenges for current retirees, even as they saw a record 8.7% boost for inflation to their Social Security benefits this year, according to Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.

“The vast majority still are seeing a gap between what their COLA [cost-of-living adjustment] has covered and the actual price increases,” Johnson said.

Ask yourself, ‘What do I need to retire?’

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For pre-retirees, it’s important to remember that inflation will subside, said Goodsell at the Natixis Center for Investor Insight.

“Realize this is a point in time with inflation,” he added. “It’s good to be aware of it; it’s not going to be this way forever.”

At the same time, it’s a reminder that prices may spike when you’re living on a fixed income, Goodsell said.

When planning for retirement, you need to ask yourself whether potential inflation shocks mean you should save more towards your later years, delay claiming Social Security retirement benefits, annuitize your money or work longer, he said.

“A lot of times we don’t as individuals really step back critically and say what do I need to retire?” Goodsell said. “What’s it going to be like?”

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